The largest public sector bank, State bank of India, has reduced its deposit rates by 25 basis points (0 .25%). The new rate would be applicable across all tenures and would come into effect from 5th of October.

According to the new rates, the maximum interest rate offered by the bank on the term deposits with tenures ranging from 8 to 10 years has been reduced to 7.75 %. This is the ninth cut in the deposit rates since March this year. A series of cuts in deposit rates have resulted in a reduction of 150 basis points on the 15-45 days deposits. The current interest rate on the 15-45days deposit is 2.75% which is even lower than interest rates on saving accounts (3.5%).

The interest rates on term deposits with two to three years maturity have been cut down by 1.75 percent point since January. The prevailing rate is 7 percent. The rate of interest for 1000 days tenure has been brought down by 200 basis points to 7 percent since March.

A senior official form SBI said that the move was aimed at helping companies that park their current account funds in this instrument. The rate of interest on current account is zero.

The official added that the bank is lowering the deposit rates so that it can reduce the lending rates as well. Since March SBI has reduced its PLR only once in June By 50 basis points to 11.75%. However, he said, though the bank reduced its home loan, education loan and auto loan rates it did not reduce its PLR. As a result of this, old customers continued to pay a higher rate of interest which is directly linked to the PLR.

A source said that the cost of old deposits continues to be high and the banks find it difficult to pass on the benefit of new rates to its old customers.